Excerpt: - - 2. on 24-1-1957 the respondent issued a notice to the petitioner under section 34 of the indian income-tax act, 1922. according to the petitioner the notice was clearly out of time......year 1947-48 (accounting period: year ended 31-12-1946). the respondent, the first additional income-tax officer, kozhikode, did not accept the correctness of the return and by his order dated 28-8-1947 the petitioner was assessed on a total income of rs. 6,669/- and directed to pay a tax of rs. 241-3-0. there was no appeal against the assessment.2. on 24-1-1957 the respondent issued a notice to the petitioner under section 34 of the indian income-tax act, 1922. according to the petitioner the notice was clearly out of time. his contention is stated as follows in paragraph 5 of his affidavit dated 12-3-1957:'the income-tax officer's right or jurisdiction to take action under section 34 can be only within the period of eight years from the end of the assessment year. in this case the.....

Judgment:

M.S. Menon, J.

1. The petitioner (Dr. A. G. Nair) filed a re-turn in resp'ect of the assessment year 1947-48 (accounting period: year ended 31-12-1946). The respondent, the First Additional Income-tax Officer, Kozhikode, did not accept the correctness of the return and by his order dated 28-8-1947 the petitioner was assessed on a total income of Rs. 6,669/- and directed to pay a tax of Rs. 241-3-0. There was no appeal against the assessment.

2. On 24-1-1957 the respondent issued a notice to the petitioner under Section 34 of the Indian Income-tax Act, 1922. According to the petitioner the notice was clearly out of time. His contention is stated as follows in paragraph 5 of his affidavit dated 12-3-1957:

'The Income-tax Officer's right or Jurisdiction to take action under Section 34 can be only within the period of eight years from the end of the assessment year. In this case the period of eight years has expired on 31-3-1956 and the Income-tax Officer's right or power to take action has ceased to exist with that date.'

3. Ext. A dated 28-11-1956 is an order of the Appellate Assistant Commissioner of Income-tax, Kozhikode, in an appeal filed by one Krishnan Nair, a Jeweller of Kozhikode. In that order the Appellate Assistant Commissioner said:

'In my view, the sum of Rs. 14,000/- credited in the account of A. G. Nair should be treated as his undisclosed income and not that of the appellant. The Income-tax Officer is directed to include this sum in the hands of Mr. A. G. Nair'.

The contention on behalf of the Department is that in view of this direction and the second proviso to Sub-section (3) of Section 34 the notice issued by the respondent is not barred by limitation.

4. The contention is stated as follows in the respondent's affidavit dated 14-6-1957:

'During the course of the assessment of one Krishnan Nair, it was discovered that a sum of Rs. 14,000/- stood credited in the name of the petitioner in the account books of Krishnan Nair. In the appeal preferred by the said Krishnan Nair against his assessment the Appellate Assistant Commissioner, Kozhikode, directed that the sum of Rs. 14,000/- should be assessed in the hands of the petitioner. It was pursuant to this direction of the Appellate Assistant Commissioner that notice under Section 34 impugned herein was issued to the petitioner.

The averments in paragraph 5 of the petitioner's affidavit are denied. The plea of timebar raised by the petitioner is not correct. The time limit of eight years is not applicable to the present case. Vide the second proviso to Sub-section 3 of Section 34 of the Income-tax Act'.

In the affidavit of the petitioner dated 29-7-1957 he replied:

'I submit that the Second Proviso to Sub-section 3 of Section 34 of the Indian Income-tax Act is ultra vires of the Legislature in so far as it affects persons other than assessee and who are not parties to the proceedings enumerated in it as it offends Article 14 of the Constitution. In the circumstances the notice under Section 34 is time barred and the action of the Income-tax Officer is without jurisdiction and patently illegal.'

5. The second proviso to Sub-section (3) of Section 34 reads as follows:

'Provided further that nothing contained in this section limiting the time within which any action may be taken or any order, assessment or reassessment may be made, shall apply to a reassessment made under Section 27 or to an assessment or reassessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under Section 31, Section 33, Section 33A, Section 33B, Section 66 or Section 66A'.

6. Counsel for the Department agrees that he cannot support the notice except on the basis of the proviso extracted above and that if we are in agreement with S. C. Prashar v. Vasantsen Dwarkadas : [1956]29ITR857(Bom) (A), the said proviso has to bo considered as ultra vires of Article 14 of the Constitution in so far as it affects third parties.

7. Chagla C. J., dealt with the question as follows:

'What is the result of a stranger being liable to be proceeded against under Section 34? The result is that if a stranger is in some way associated with an assessee and the assessee's assessment is under consideration and if he has the misfortune of having some finding or direction given by the Tribunal in respect of him, then, although otherwise no action could have been taken under Section 34 because such action would have been barred by limitation, action can be taken under the proviso and he loses the right that he had of considering that any further proceedings under the Income-tax Act with regard to his income for past years were not competent or not open to the Income-tax authorities' (p. 900 (of ITR): (p. 536 of AIR)):

'Why should persons who happen to be mentioned in an order of the Tribunal be treated differently from persons whose liability to pay tax has been communicated to the Income-tax authorities in a different manner. We see no rational basis whatever for the distinction made between these two types of people who fall in the same category and with regard to which there was not the slightest difficulty in having a uniform provision of law' (p. 901 (of ITR): (p. 537 of AIR)); and

'The category is one and it is not pointed out, and it cannot be pointed out, that there would be any difficulty in the application of this particular proviso to other tax evaders besides those who have been discovered by the fortuitous circumstances of having the honour of being associated with the particular assessment and the further honour of being mentioned in the judgment of a particular Tribunal. In our opinion, the learned Judge below was right in the view that he took that this proviso offended against Article 14 so far as it affects third parties' (p. 903 (of ITR) : (p. 537 of AIR) ).

8. We are in entire agreement with the reasoning adopted and the conclusion reached in the case above mentioned.

9. It follows that this petition has to be allowed. Judgment accordingly. No costs.